Ex-Dividend Date Stock Behavior and the Clientele Effect: Evidence around a Tax Reduction

This study analyzes the behavior of stock prices around the ex-dividend date focusing on the effects of a major tax reduction. Using the 40 most heavily traded shares on the Santiago Stock Exchange, the study evaluates price drop ratios using various measures of ex-dividend day prices. The findings indicate that the dividend tax reduction has an effect on the price drop ratio; this result is consistent with the clientele effect hypothesis.